“…according to Atsushi Yamaguchi, an analyst with SMBC Nikko Securities…if it fails to demonstrate change in its corporate structure, Kobe Steel risks an exodus of customers and investors over the longer term’ he said.”

Hyundai and Kia last month recalled 1.5m vehicles in the US, Canada and South Korea over engine defects, at a cost of Won360bn ($322.4m); this month the carmakers were ordered by South Korean authorities to recall a further 240,000 vehicles. US safety regulators are now looking into whether Hyundai’s recalls over engine defects were timely and whether enough vehicles were covered…

…“They have been lagging in innovation . . . Hyundai needs to aggressively ramp up its R&D efforts as well as exploring new mobility models to prepare for a very different automotive future,” said Dominique Bonte, analyst at ABI Research. “If not, it will be left behind by other [global players], which are all aggressively moving forward.”

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#risk Alan Greenspan noted in 2008 that in a business based on trust, #reputation has significant value.

The UK’s accounting watchdog has fined professional services firm PwC a record £5m for “misconduct” in relation to the audit of Connaught, a FTSE 250 social housing maintenance group put into administration in 2010.…The latest ruling is another blow to PwC’s reputation following its Oscars envelope mishap and a $3.1bn legal battle with MF Global in the US.

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McDonald's is objectively in difficult straights. Economic news for Q1 reported in mid April was dismal with global sales down by 2.3%, revenues down 11%, and income down 28%. Strategically, the company mollified investors by returning $1.4 billion to shareholders through dividends and share repurchases.

But there is reason for guarded optimism. The company is beginning to understand what drives its reputation, if its public reporting is a valid indicator. Mentions of reputation are up 300% in item 1A Risks.

For the first time in the company's K's and Q's, it acknowledged in 2015Q1 that quality impacts the firm's reputation. "Food safety is a top priority, and we dedicate substantial resources to ensure that our customers enjoy safe food products…In 2014, food quality issues were discovered at a supplier to McDonald’s and other food companies in China. As a consequence of this issue, results in China, Japan and certain other markets were negatively impacted due to lost sales and profitability, including expenses associated with rebuilding customer trust. Any future instances of food tampering, food contamination or food-borne illness could adversely affect our brand and reputation as well as our revenues and profits."

"With new U.S. leadership, the U.S. is focused on a strategic roadmap that includes a revamped marketing approach…" Might quality by part of the turnaround? Hard to say. There is no indication that it is part of the increased investment into marketing. "Selling, general and administrative expenses as a percent of revenues increased to 9.8% for the quarter 2015 compared with 9.3% for 2014, and as a percent of Systemwide sales increased to 3.0% for the quarter 2015 compared with 2.9% for 2014, as weaker foreign currencies are having a bigger impact on revenues and sales."

Exuberance should be tempered by the sobering fact that the term quality only makes one other appearance in the filing. Quality is mentioned in a string of attributes on which the company competes, "We compete on the basis of product choice, quality, affordability, service and location"-- issues that are relevant to marketing. Quality is not discussed in the context of operations or controls.

Turning to the reputation value metrics, which can be viewed as either controls on the process that affect reputation or a window into stakeholder assessment of governance, and there are again reasons for guarded optimism. McDonald's Reputation Value Metric is still in the 99th percentile among the 76 firms in the restaurant peer group with a very low Consensus Trend. On the other hand, the sobering news is that its reputation value metric has been declining for nearly a year.

The data suggest that the enterprise's reputation for a reliable, repeatable quality experience, currently at 80% of its potential, may be restored. First, McDonald's should recognize that the aforementioned list are the core values that underpin the expectations of the stakeholders who consumer McDonald's products. That would tackle the quality challenge.

The Company also faces significant pressures on the labor front. The Company should appreciate that employees who are engaged with a Company that is well respected will find intangible benefits of employment will offset some fraction of wage costs.

These benefits become transparent on the P&L, and in enterprise value, but they come only to those whose governance organization understands the rules of doing business in the 21st century.

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In the entertainment business Disney knows so well, managing reputation is a business imperative. The NFL has been sacked three times in as many years for reputation losses. Blame the Internet, if you will.

Warnings dating back to 2009 predicted that “hyper-transparency” enabled by the Internet would change the boundaries used to assess a company’s scope of control, and its degree of accountability and responsibility. Since then, stakeholder pass rushes have sacked the NFL thrice: for poor quality and greed, poor safety and greed, and now poor ethics and...greed?

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"It was hardly a quiet week at Lake Reputation-be-gone," Garrison Keeler might have said. "Walgreen, McDonald's & Yum!, and current poster-child GM had their respective moments in the sun...again."

Walgreen's issue is an ethical one. The company whose motto proclaims it to be "the pharmacy that America trusts" would just as soon not pay America $4 billion in taxes over the next five years. The company is now deciding whether to take advantage of the US tax law loophole that would reward it substantially with a lower tax base were it to acquire controlling interest in a Swiss-based company and nominally relocate its headquarters overseas.

McDonald's and Yum! were apologizing for supply chain issues that again raised questions of food quality and safety in the Chinese operations. Earlier this week, Chinese regulators closed the Chinese division of an Illinois-based good supplier (OSI) after a TV report showed workers picking up meat from a factory floor and mixing expired lots with fresh lots of meat. Upton Sinclair would have been proud.

GM announced six additional automobile recalls this week bringing its total for the year to 60 announcements covering 29 million cars worldwide. Quality and safety issues are at the forefront, but they are not all associated with supply chain failures. Some, in fact, are due to assembly and integration issues in GM's wholly-owned operations.

As is the case after every major operational issue, the press is making much ado about the damaged reputations of these firms. The events are certainly news-worthy and embarrassing. Whether they cause stakeholder to reassess their respective relationships with the companies, however, is the central issue in a reputation crisis.

Walgreen's issue is unlikely to have any effect on most stakeholders. Equity investors will be thrilled, and creditors equally so. Legislators are unhappy, but it is not clear their opinion matters much since they have proven their inability to do much of anything.

This is Yum!'s second bout of China-related supply chain safety and quality. The toxic chickens of 2012/2013 gave them quite a reputation scare, which is why they may have dumped OSI like a hot pan. McDonald's is new to this type of crisis and is sticking with OSI. Also, McDonald's maintains qualitatively different types of relationships than Yum! with its suppliers. By forgiving OSI, McDonald's is demonstrating the benefit of OSI's historically stellar reputation…to OSI.

GM is now in a league of its own. Credit the company with fabulous spin control by declaring that Wednesday's additional recalls signified how the company had enhanced its approach to safety.

An indication of quality, and by extension, the reputation of something like the Mission Intangible Blog of Intangible Asset Finance Society is the growth in readership. Two years ago in May 2012, this blog received 10,228 page views according to metrics provided by Business Catalyst, a unit of Adobe. Last month, April 2014, this blog received 351,000 page views. Thank you for your interest.

Briefing Friday 16 May at 10h00 ET

Program: IP Quality - 1, 2, 3 What Are We Fighting For?

The hardest part of business to business contracting used to be haggling over price; today, it is just as likely to be haggling over intellectual property rights. This is because Intellectual Property is potentially valuable -- provided it is really good stuff. What are the measures of "good?"

Joining the program to explore the patent quality and quality controls, and the critical role of the business executives in enabling patent quality, are John W. Kepler, JD, an attorney and authority on IP quality; and James M. Singer, an intellectual property attorney with Fox Rothschild and head of the firm's IP section. Mr. Singer and the law firm of Fox Rothschild LLP support the Society through pro bono legal advice in intellectual property matters.

The old joke about medical mediocrity, Jeopardy style, had the punchline "Doctor" to the set up, "What do you call the students who graduated at the bottom of their medical school class?" Humor aside, that job title, which once ensured a stable respectable income, is losing its intrinsic value as standardized patient satisfaction measures become public. A reputation for quality matters.

Alas, the road to hell is paved with good intentions. The Centers for Medicare & Medicaid Services, an $820 billion operating division of the United States Department of Health and Human Services, administers the HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems) survey, the first national, standardized, publicly reported survey of patients' perspectives of hospital care. The HCAHPS (pronounced "H-caps") survey asks discharged patients 27 questions about their recent hospital stay. The survey contains 18 core questions about critical aspects of patients' hospital experiences (communication with nurses and doctors, the responsiveness of hospital staff, the cleanliness and quietness of the hospital environment, pain management, communication about medicines, discharge information, overall rating of hospital, and would they recommend the hospital).

The survey has teeth. Since October 2012, hospitals whose HCAHPS scores have been subpar have been penalized with reductions in their Medicare and Medicaid reimbursement.

Here's the rub. There are perverse incentives in a system that seeks to optimize its operations for only one stakeholder group: patients. Without in any way diminishing the importance of customer (patient) satisfaction, a medical center's highest goal is to provide the greatest degree of affordable access to the highest quality care. Satisfaction has much to do with expectations that in matters of life and death, are often emotionally laden; quality care has much to do with optimizing health outcome in the setting of limited resources. The former is only one of several contributors to the latter, which at the end of the day, is the foundation for a medical center's reputation. There is an inherent tension, captured in the dark comedy doctor-coming-of-age novel, House of God, and rule #13: The delivery of good medical care is to do as much nothing as possible.

It does not help matters when the two concepts, patient satisfaction and institutional reputation, are intermingled. As Jonathan Salem Baskin points out in his blog at Consensiv, "Pleasing a clinic customer now will certainly have an impact what other customers expect from a future visit, but that influence isn’t necessarily direct or reliable. We presume a variety of operational variables affect reputations in the clinic industry, such as services offered, accessibility, accountability, pricing and reimbursement, even the unavailability of competing services."

Reputation mountains should not be built on patient satisfaction mole hills. It's a bad business strategy; it is also a bad health care delivery strategy.
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